e-Business Plan: Operations
Beginning with the operations section, the scope of the business plan changes. Previous sections of the business plan, especially mission statement, value proposition, target markets, and competitive positioning, mostly focused on the strategic aspects of developing your business and writing the business plan. Although we couldn't do the hard work of writing the business plan itself, previous lessons have provided specific guidelines and assignments to help you do so.
In the operations section and financial statements section that follows, the scope of the business plan changes from the strategic to the operational. This change makes it more difficult to specify exactly what needs to be included in the operations section (or "operations plan") because many of the operational details depend on the nature of the business itself. For example:
All these factors, and more, directly impact the specification of the operations plan. In fact, one how-to-write-a-business-plan book lists 198 questions companies should consider in business location, operating facilities, purchasing procedures, inventory management, quality control, customer service, organizational structure, and personnel. It is beyond the scope of this lesson to attempt to list, much less answer, those 198 questions for you.
Accordingly, the first part of this lesson moves away from a step-by-step approach of writing a business plan. Instead a more general, descriptive approach is taken of what should be in the operations section, leaving it up to you to use the resources in the Top Ten Resources for Writing an e-Business Plan and guidance from your instructor to develop an operations plan with the detail required for your course assignment.
The second part of the lesson, establishing a Web presence, returns to the standard lesson format. Instructions are provided for considering three operational aspects that each e-business will have to face: Web site hosting, Web site development, and selecting a domain name.
The lesson outline is:
Writing an Operations Plan
--What is operations?
--Should operations be in a business plan?
Content of the Operations Plan
--Operating facilities and equipment
--Production and operating procedures
--Inventory management procedures
--Quality control procedures
--Customer service procedures
Establishing a Web Presence
--Web site hosts
--Web site development
--Selecting a domain name
Writing an Operations Plan
What is operations? Formally, operations is the process through which resource inputs are converted into useful outputs. Inputs include raw materials, capital facilities, equipment, labor, and management talent. Outputs include manufactured products, services, information, and anything else the customer values. The operations function creates what the business will sell and the operations section of the business plan describes the inputs, processes, procedures, and activities required to do so.
Operations cannot be dismissed as the 21st century equivalent of "factory work". Operations plays a critical role in the success of the organization because operations is where value is produced. While the business description section defines the product and its value proposition, the operations section describes how that value is efficiently produced.
Should operations be in a business plan? We ask this question because some business plan books and software do not include operations as part of a business plan. Maybe they do this because it is a difficult section to prescribe (see discussion above) or because they don't consider it appropriate for a business plan.
The majority of business plan readers are most interested in the viability, feasibility, and profitability of the business. The previous sections, especially the value proposition and competitor analysis, should have presented a convincing argument for viability. The profitability question is addressed in the financial statements section that follows. That leaves the feasibility question, which is addressed in the operations section. The business plan reader will want to understand the process that creates the value proposition and how this process contributes to the success of the business. Therefore, most business plans should include an operations section and your plan should too.
However, with that argument in mind, we rush to add that it is essential that the operations section be written selectively and concisely. Simple or obvious operational details do not need to be meticulously described, if at all. What is presented should be written succinctly, and always with the needs of the business plan reader in mind. A good rule to follow in writing the operations section is "when in doubt, don't include it", and don't be afraid to use the phrase "more details are available upon request" in this section too. A short, concisely written section that shows you have put considerable thought into how your business will create value will be interesting to the reader and demonstrate that you are a capable businessperson.
Content of the Operations Plan
The following paragraphs present a menu of subsections that can be included in the operations plan. Not every one of these sections will need to be in your business plan, it depends on the nature of the business. For example, inventory management is a negligible factor in a service-oriented business so it may be treated briefly or not at all. Similarly, the organization structure and management plan for a small business are likely to be simple and self-evident, so they would barely get a mention here or be included in the business description section, as suggested earlier. The operations activities that describe the value your product delivers to customers are critical to understanding the business are the sections that should get full attention in your operations section.
Business location: As an on-line business, the primary location of your business is the Internet, and various aspects of establishing and maintaining your location in Cyberspace will be discussed in the Web presence section below. However, every e-business will also have a physical presence, even if it is in the entrepreneur's home. If your e-business sells product out of a physical storefront, stores product in a warehouse, ships product from a distribution depot, or services customers from a call center, those location-specific aspects of your business should be identified here. If location is an important consideration for business success, then be sure to highlight that here. For example, Amazon.com located its warehouses in small population states such as Delaware and Nevada so it can ship books into the large East Coast and California markets without charging sales tax, giving it a competitive price advantage over local bookstores.
Operating facilities and equipment: Concurrent with the discussion of location, or immediately following, is a description of the operating assets the business will require, including buildings, equipment, fixtures, vehicles, and software. Again, the information that is provided should be brief and focus on facilities that contribute to the value proposition (e.g., an equipment patent or software application that allows unique or highly efficient production techniques).
Production and operating procedures: This subsection outlines the day-to-day operating procedures that describe how the value sold to customers is created. It is easy to "over describe" in this section. A business plan reader generally will not want to know the nitty-gritty details about steps in the production process, how many service representatives per customer are required, production volumes, contribution margins, and so on (there is an exception -- see Business Case Box 6). Only operating procedures and policies that are unique or special should be highlighted here. For example, if the business will use new technology to speed work flow and achieve new efficiencies in information or product handling, say so here.
Business Case Box 6
Purchasing procedures: If operations is about converting inputs into outputs, then purchasing inputs should be considered for inclusion in the operations plan. The nature of these inputs will largely depend on the business -- raw materials for manufacturers, components for assemblers, finished products for retailers, equipment and supplies for service providers. Highlight any major purchasing considerations, such as e-procurement or participation in a digital exchange, that will give the business increased efficiencies over competitors.
Inventory management procedures: Efficiently managing both incoming inventory and finished goods is critical to companies that hold any material or product for a significant length of time. For these companies inventory represents a substantial investment of funds and the ability to effectively control inventory levels is a management quality that the business plan reader will be looking for.
Quality control procedures: Total quality management (TQM) experts define quality as meeting or exceeding the customer's expectations first time, every time. Before TQM, quality control was something that was done after product manufacture or service delivery. Today quality control procedures begin with product design and are monitored throughout the production and delivery process. Quality control also has moved out of the factory, into the service industries.
Quality control is an important part of business plans when the business will operate in a highly competitive market and the nature of the product or customer implies quality will be a major factor in the purchase decision. One key selling point in quality control is to investigate the feasibility of obtaining a quality control certification for your industrial sector (e.g., ISO 9000).
Customer service procedures: Of all the subsections of the operations plan, customer service policies and procedures is the one most likely to be included in an e-business plan. Why? Not just because every e-business has customers, but because one of the best ways for an e-business to distinguish itself in the on-line marketspace is to be passionate about customer service.
Questions that might be addressed in this section include:
Organization structure: For tax and legal purposes, most countries require an organization to declare a legal form of ownership. In the United States the general choices are sole proprietorship, partnership, and corporation. Similar options exist in most other countries, with slight variations in meaning and names. In the United Kingdom and most Commonwealth countries, for example, a corporation is known as a limited company (here "limited" means the owners are only responsible for a certain level of company debt, as in a "limited liability company").
If the business is a medium-sized or large company, then a business plan reader will be interested to know how the business intends to organize itself to achieve the goals set out the business plan. This organization design or structure defines the formal lines of authority that exist between managers in order to coordinate the efforts of each department so that the firm operates as a whole. The usual way to present this is in an organization chart that shows all major divisions (e.g., marketing and sales, production, customer service, information technology) with reporting relationships. Explain the organization chart with comments on management issues such as delegation of authority, managerial hierarchy, and span of control.
Management plan: Complementing the organization structure section is information about the background, skills, and expected contributions of each of the principals of the business. If senior management personnel have been recruited their qualifications for the positions they hold can be included in the management plan or in an appendix.
Establishing a Web Presence
One operations requirement that all e-businesses have is a Web site. In this portion of the Operations lesson we return to our step-by-step approach to describe what is required to establish a Web presence.
Web site hosts: As suggested in the business location discussion above, an obvious operational decision that needs to be made is where you intend to locate your Web site. Chapter 16 in Electronic Commerce 2004: A Managerial Perspective describes the four hosting options, and variations, in considerable detail. Students using Introduction to Electronic Commerce should consult EC 2004 for this material.
Briefly, the Web site hosting options, from most simple and inexpensive to most complex and expensive, are:
Assignment 16: Based on your intended Web site host requirements, select one of the options listed above and investigate the feasibility and cost for hosting a Web site for your e-business (the cost information will be used in the financial statements). As part of your operations plan, briefly explain and justify your decision. Follow the guidance provided by your instructor to submit, present, or save this analysis.
Web site development: Concurrent with your investigation of Web site hosting options, consider the requirements and options for constructing your Web site. Web site development is really about three options -- internal development, outsourcing, or partnering -- spread over two time periods -- start-up construction and ongoing maintenance. Students using Electronic Commerce 2004: A Managerial Perspective will find these options fully discussed in Chapter 16. Students using Introduction to Electronic Commerce should consult EC 2004 or an information management textbook for this background information.
The basic three Web site development options are:
Internal development is the do-it-yourself option, building and maintaining the Web site with company employees. Companies that develop Web sites internally mostly do so because they wish to make Web site management part of their company's skill set. Another reason for internal development is that a business wants tighter control and faster responsiveness for problem resolution, content management, and ongoing development.
External development or outsourcing implies the business hires another firm to build and/or manage the Web site. Factors that tend to favor external development include faster speed to market and better access to special expertise, especially in the Web site construction phase. Small companies especially may also decide "its not our thing" and leave this important job to experts.
The internal-or-external decision does not need to be all one way or the other, some form of partnering development may be the best option. Depending on the nature of the site and the skills required, a mixture of internal and external development is possible and may be desirable.
Web site development occurs over two distinct time periods:
Web site construction consists of the initial design, construction, installation, and testing phases of a Web site's development. As suggested above, this is likely to require a variety of expert skills only rarely available inside the company (e.g., information architecture, Web page design, database integration, programming, search engine optimization). Unless the Web site is small and limited or one of the factors favoring internal development is especially compelling, most businesses decide on external development or partnering as the best option for Web site construction.
Web site maintenance begins when construction ends. Building a Web site is one process, maintaining it is another. Once the initial Web site has been constructed, the on-going incremental development and maintenance can be managed internally, externally, or in a partnership arrangement.
Assignment 17: Based on your intended Web site requirements and the considerations listed above, select (a) internal development, (b) external development, or (c) partnering for your (a) start-up site construction and (b) ongoing site maintenance. Follow the guidance provided by your instructor to submit, present, or save this analysis.
Selecting a domain name: A marketing and operational consideration is selection of the company's domain name. The domain name will be the business' on-line identity, its Web address, and it is an opportunity to create branding. So for the highest level of e-commerce positioning, you need a domain name that distinguishes your site from all others.
A full discussion of selecting a domain name is in Chapter 16 of Electronic Commerce 2004: A Managerial Perspective (see especially the list of suggestions for selecting a good domain name). Students using Introduction to Electronic Commerce should consult EC 2004 or make extensive use of the domain name resources listed below.
Although domain name assignment is under the authority of the Internet Corporation for Assigned Names and Numbers most e-business owners purchase their domain name from one of ICANN's registrars.
An on-line business that wishes to purchase a domain name in one of the global top level domains (e.g., .com, .biz, .info, .net, .org) should purchase it through one of the ICANN-accredited registrars. An e-business that wishes to purchase a domain name in a country-code top level domain (e.g., .uk for United Kingdom, .au for Australia, .jp for Japan) should consult the appropriate ICANN-appointed regional Internet registry.
Registrars don't only sell domain names, most of them also provide tools to assist prospective buyers to select a domain name. For example, if the preferred domain name is not available, most registrar sites will automatically generate a list of similar names that are available for purchase. Most registrars also link to a whois databases of registered domain names. This database contains contact details of the current owner of a domain name. Expect an established business to be reluctant to give up a domain name, but if the domain name is reserved but not in use the owner may be willing to sell it for a reasonable price.
In addition to using resources at the registrars' sites, there are a number of Web sites that can assist with the process of selecting a domain name. Here are a few suggestions:
Assignment 18: Find an available domain name (one currently available at the time you investigated it) for your e-business and write a brief paragraph to explain and justify it. Follow the guidance provided by your instructor to submit, present, or save this name and explanation.
Navigation Guide for the e-Business Plan Tutorial
Introduction to the E-Business Plan Tutorial
--Top Ten Resources for Writing an e-Business Plan
Fundamentals of e-Business Planning
Writing a "Read Right" Plan
Making an Effective Business Plan Presentation
Appendix: e-Business Plan Tutorial Assignments